The Group

Key figures

In 2016, Imerys improved its performance with a + 9.9% EBITDA and a + 8.2% current operating income increase. In this context, the operating margin was up + 80 basis points to 14.0%. These achievements are the result of our operational excellence programs and our development strategy, which combines internal growth, driven by innovation and external growth, with, in particular, the acquisition of S&B, for which synergies have been achieved one year ahead of schedule. They also reflect the relative improvement in the environment observed towards the end of the year, which translate into a + 1.7% increase in the organic growth in the 4th quarter 2016. Moreover, the financial soundness was reinforced with a current free operating cash flow of 395 million euros.

Sales

Revenue for 2016 amounts to €4,165.2 million, a + 1.9% increase compared with 2015. This growth is mainly due to:
• a + €140.2 million positive net structure effect (+ 3.4%), which mostly includes the consolidation of the external growth operations completed in 2015 and 2016;
• a very slight negative exchange rate effect of - €4.4 million.
At comparable Group structure and exchange rates, revenue was - 1.4% lower than in 2015 but rose + 1.4% in the 4th quarter because of a favorable basis of comparison and the relative improvement of some markets and regions.
In 2016, revenue from new products increased + 6.7% to €523 million, which represents 12.5% of the Group’s revenue (vs. 12.0% in 2015). Price/mix remains firm at + 0.7% for 2016 (+ €27.1 million).

Current Operating Income*

The + 8.2% increase in current operating income to €582.1 million in 2016 results from:
- The development of the Group’s specialty product offering, with price-mix contributing €21.5 million;
- The ramp-up of synergies from acquisitions, including from S&B, which were achieved one year ahead of the initial schedule;
- The operating excellence and purchasing control programs, which led to a €18.3 million improvement in fixed and variable costs. The analysis of the + €38.9 million currency impact, mainly attributable to the devaluation of the Brazilian real, should be viewed in the context of the - €6.8 million negative impact on fixed and overhead costs resulting from high inflation in Brazil, a country from which the Group exports.

In this context, the Group’s operating margin also benefitted from favorable trend in the activity mix and posted a + 80 basis point improvement to 14.0% (13.2% in 2015).

* Operating income before other operating revenue and expenses

Net Income from Current Operations (Group's share)**

Net income from current operations increased + 6.0% to €362.1 million (€341.5 million in 2015). It takes into account net financial expense of - €63.9 million, a higher figure than in 2015 (- €55.5 million) due to lower gains on exchange rates and financial instruments (- €0.5 million vs. + €8.5 million in 2015). Interest expense increased slightly to - €52.7 million, compared with - €49.1 million in 2015. In addition, the - €154.1 million tax charge (- €140.5 million in 2015) reflects an effective tax rate of 29.7% (29.1% in 2015).

** Group’s share of net income before other operating revenue and expenses net

Current Free Operating Cash Flow and Capital Expenditure***

Imerys generated a strong current free operating cash flow in 2016 (€394.6 million vs. €342.5 million one year earlier), mostly from the following items:
· A + 9.9% increase in current EBITDA to €818.9 million;
· A + €14.4 million positive change in operating working capital requirement in 2016, compared with + €21.8 million in 2015, thanks to optimized inventory management. The ratio of working capital requirement to annualized sales amounted to 23.6%;
· Paid capital expenditure, which totaled €278.5 million in 2016. The booked amount (€288.5 million) represents 128% of depreciation charge, a comparable ratio to 2015 (122%). In addition, capital expenditure in 2017 should be impacted by the deployment of a multi-year investment program to tap into the growing market of lithium-ion batteries for mobile energy.
*** EBITDA minus taxes on current operating income

Shareholders' equity and net debt

Net financial debt totaled €1,366.5 million as of December 31, 2016, a - €114 million decrease compared with December 31, 2015. It takes into account the €139.4 million dividend payout, most of the share repurchases completed under the Group’s buyback program (€66 million) and payment for the acquisitions completed in 2016.
As of December 31, 2016, Imerys’ financial resources totaled €3.9 billion. After deducting gross financial debt, available non-cash resources amount to €1.9 billion with an average maturity of 4.9 years.
Finally, on January 10, 2017, Imerys completed a €600 million bond issue with a 10-year maturity and a 1.50% annual coupon. The offer was oversubscribed 3 times and benefited from highly favorable market conditions. It enables Imerys to prepare for the contemplated acquisition of Kerneos, which was announced on December 11 and should be entirely funded from the Group’s available resources. It also contributes to the extension of the average maturity of the Group’s debt financing from 5.5 to 6.5 years.
Following the announcement of the Kerneos acquisition project, Imerys’ unsecured senior debt, as rated by Moody’s since 2011, was confirmed at “Baa-2” with a stable outlook. The credit rating given by Standard & Poors on December 14 is “BBB”, also with a stable outlook.